BitCoin - How I Missed The Trade Of The Year

Posted 14 Jun 2011

BitCoin. I first learned about it in October and wrote about it 17 January 2011 in BitCoin - The Best Financial Privacy Is Here ... Probably. The article was theoretical not practical. I missed the trade of the year. This was a serious woulda, coulda, shoulda but didn't moment.

I even told a few friends I was going to put in about $5,000. Today with a completely non-levered investment that would have turned into slightly over $550,000 in 8 months. $550,000 in a completely anonymous account with neither a paper or audit trail nor a 1099 and the asset would have been purchased with $5,000 of physical cash. That is one way to vanish some equity.

But there was a lot of risk to be taken in making that initial investment. The risk has since decreased but I still think there is a tremendous amount of upside potential. Perhaps even a thousand percent gain between now and the end of the year. Regardless of what ultimately happens with BitCoin I think you will want to know what BitCoin is and the potential for this new type of technology and its application to monetary science in the Information Age.




BitCoins are merely some computer bits that are limited in amount. The network for their generation is decentralized and bitcoins are transferred between individual's via the Internet with extremely low fees, they can be used anytime or anywhere, the account cannot be frozen and there are no silly or arbitrary rules such as Know Your Customer, source of funds, limits on amounts that can be transferred or stored, currency controls, etc.

The entire software is open-source. That means anyone can read the code, publish opinions and engage in review within the full view of the marketplace of ideas. 

There is no centralized individual, entity or organization that pressure can be applied towards to force the disclosure of customer records, freezing of funds, transaction history or any number of other private and sensitive information. This is a serious attack on the fiat currency and fractional reserve banking conspiracy.


The main disadvantage of bitcoins is their being an illusion. In chapter 1 of The Great Credit Contraction I distinguish between money, money substitutes and illusions which can all function as currency. An illusion is a negotiable that promises nothing and has no intrinsic value.  

It is like a silver certificate that promises the bearer no silver.  It has value only because individuals are willing to bear the payment risk and other risks of the illusion.  The bearer usually tolerates the risks because their cost is lower than the value placed on the utility derived from the service the currency provides to the market participants.

Consequently, bitcoins have a value history in The Regression Theorem like the evaporating Euro. Bitcoins have no intrinsic value and unlike Euros or FRN$ cannot even be used for their combustible or defecation cleaning properties. But despite this serious disadvantage, which GoldMoney solves, I think because of the decentralized aspect BitCoin may actually be a superior form of transaction currency to GoldMoney. Together and combined with hawala techniques these two currencies almost perfectly compliment each other.




How To Store BitCoins - You can store the bitcoins in your own wallet or with a third party.

If you store in your own wallet then I would recommend Dropbox and TrueCrypt. If you keep your BitCoin wallet on your computer or in the cloud then you may lose the file, have a TrueCrypt file header get corrupted, etc. and the bitcoins would be unrecoverable. Remember, they are like digital cash.

If you store with a third party then an easy way I would recommend is Trade Hill which is free and much easier to figure out than trying to setup your own wallet and then using tools like TrueCrypt and Dropbox to protect it but I suppose the risk is that they could abscond with your bitcoins.  So all things considered for now I think TradeHill poses a small risk of loss.

How To Get BitCoins - A few ideas are that you can use an exchanger, a broker, trade with someone via the Internet or in person or engage in bitcoin mining.

The largest exchanger is MtGox. They exchange hundreds of thousands of FRN$ value of bitcoins for cash and vice versa per day.

If you are interested in using cash then I might be willing to help out with smaller transactions but I am not really that interested. I suppose you will find a way to contact me if you really want to. I would prefer to refer you to someone who I have had a positive experience with but there is always risk. I just know how cautious I am and imagine many of you are likewise very cautious.


BitCoins have sustained a tremendous rally from about $0.25 to over $30.00 in less than 8 months. I missed this perceived risky trade because I was too cautious. After a thorough study I think there is tremendous merit to the BitCoin project and think it deserves some serious due diligence by holders of capital and speculators.

I would not be surprised to see a triple or quadruple digit BitCoin price by the end of year. There is some serious speculative potential here. Also, at RunToGold and HowToVanish are willing to take bitcoins as payment for any products we offer.

Please let me know in the comments what you think of this new BitCoin project. Thanks!

DISCLOSURES: Long physical gold, silver, platinum, palladium and bitcoins.